A Parable for 3rd Party App Developers

Posted on April 16, 2010. Filed under: startups, venture capital | Tags: , , , , , |

It used to be that a startups were islands.  At the onset of a venture an island consisted of a sandy beach, a jungle, 2 founders, and 2 computers.  At first the founders, and then all those who came to work on the island (employees, management, investors, etc..) were focused on building the island into a city the size of Manhattan.  Everything that was built on the island was 100% owned and operated by the island.  Everything they learned, and everything they did stayed within the island.  The reason: in order for any new island to become Manhattan, it had to compete to attract millions of people to its population (users/customers).  In order to maintain an edge over the competition, islands did not open up their learnings (data) to new and competitive islands.

The islands that most quickly developed (built out indoor plumbing, public transportation systems, etc)…became the most desirable islands to live on, and their populations began to grow.  The first island with a public transportation system began growing fast.  As its population grew, the demands of inhabitants began to outpace the rate at which those working to build the island could develop solutions.  Inhabitants demanded a hospital, but the founders and employees of the island were still building roads.  The smart founders realized that they could not build a hospital fast enough on their own, so they sent a ship to Manhattan, found the guys who built Mount Sanai Hospital (3rd party application developers), and brought them back to the island to build one (3rd party applications) that would be owned by the hospital builders and not the island.  The founders and the island supported the hospital builders with local knowledge (open API and dev support), the hospital opened, and the inhabitants were happy.  Because they were so happy, inhabitants began to call their extended friends and families on other islands with invitations to come join the island with a new hospital.  The island’s population doubled in 2 months, the public transportation system generated 2x the revenue it did pre-hospital, and the island flourished.

A neighboring island, who had not yet built a public transportation system, but that had the best local fruit of any island in the sea, saw the success of this new hospital, and inquired as to whether these magic hospital builders would come build a hospital for them.  The hospital builders visited the island, saw that there were 1/10 the inhabitants on fruit island, and explained that they were concerned about their ability to operate a profitable hospital on an island with so few potential patients.  The fruit island founders explained that the fruit on their island was going to attract 10 times the inhabitants of public transportation island.  The hospital builders, lacking a competitive project at the time agreed to take on the new project, built the hospital, and fruit island’s population grew on a similar trajectory to public transportation island.  They island sold 2x the local fruit, and they flourished.

All new islands began to perceive the value of having a hospital (3rd party application), and the hospital builders all of the sudden had more islands calling then they did time and bandwidth to complete the projects.  The builders decided to prioritize the projects by which islands had the most inhabitants (user/customers) that would become patients the day the hospital opened its doors.  These islands would be the ones where they could recoup their development costs the most quickly.  As such, it became harder and harder for new islands to build hospitals, and thus harder for new islands to attract inhabitants.

Public Transportation Island saw a symbiosis in its relationship with the hospital builders, and decided to invite school builders, power utilities, and pretty much any builder from Manhattan to come and build out businesses and infrastructure.  All visiting builders could own and operate their projects on top of the island.  This time, every other island saw Public Transportation Island’s move, and now understanding the benefits of this concept, immediately extended the same invitation.  Public Transportation Island had the largest population, and so had no problem attracting these 3rd party builders, and the question became: how do less scaled islands compete to create the necessary infrastructure to attract inhabitants despite the scale of Public Transportation Island.

Promises of future growth, like that of Fruit Island’s to the hospital builders, became a dime a dozen, and then a group of visionary islands had a break through.  They said, “why do we ask these builders to come build our island, create the infrastructure that will help us scale our population, but still consider them visitors and not a part of our island?  We believe in cementing our relationship with those that help us grow.  From this day forward, those builders who build our hospitals and schools will become owners of our island, a part of our island, and enjoy not just the benefits of their own project’s growth, but the benefits of our entire island’s growth.

Public transportation was not prepared to match this offer because they were already so large, and builders started to leave Public Transportation Island, to build for islands that recognized them as true members of the community…The visionary island chain was able to attract builders who gave up near term revenue opportunities on Public Transportation and other scaled islands, for a piece of the visionary island’s growth (stock options), and this is how a small island was able to grow faster than a scaled island.

Lesson: It’s time for platforms to think of 3rd party developers as team members.  Carve out a piece of the rock, reward those who create the most value in your ecosystem with equity in your platform…we understand that Twitter and Apple need to make money, but let the companies on who’s back you built enjoy some of the upside as your platform scales.  If you don’t, they’re going to start scaling other environments to supplant you.

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For Every iPhone User in NY, A Conspiracy Theory

Posted on February 3, 2010. Filed under: venture capital | Tags: , , |

So this is not another rant about AT&T and the absolute shit service/coverage that I have with my iPhone.  Nor is it a complaint about the customer service ping pong that these two companies are playing, passing the buck to the other and sending consumers back on forth without taking any responsibility for what I view to be a breach of contract at this point.  These stories have been beaten to death…I’ll just leave it at “I agree” and now tell you a story that is way more intriguing:

But first, I’ll outline an explanation (admittedly coarse and unnuanced) for why we all don’t get the service we are paying for.  AT&T has built a physical infrastructure of cell towers that supports all of their customers’ phone/data usage.  When we try to make a call or view a webpage on our phones, we are requesting a portion of this fixed infrastructure.  There is a limit to how much data one node in the network can support, and when that limit is reached, we as consumers are either routed to a different tower, or simply can’t pull data (failed call/failed page view/etc…)…

So picture the infrastructure as a single pipe carrying water to a village of 100 people.  The amount of water that village can consume in a day is defined by the diameter of the pipe and the speed at which the water is pumped.  That pipe was built to support the villages cooking and bathing needs, and it did the job for many years.  Now imagine that almost overnight the village grew from 100 people (AT&T customers pre iphone/smart phone penetration) to 10,000 people (AT&T customers post iPhone/smart phone penetration), and each person decided they were going to install a swimming pool in their hut, and water their lawns 24 hours a day.  Obviously, demand for water will outpace the speed at which the town can build a new, fatter pipe, and all of the sudden…not only can they not fill their pools (mobile internet usage), but now they can’t even rely on a steady shower in the morning (calls/texts)…

So now imagine that the Company that owns the pipe (AT&T) can decide which homes in the village get water first, and which don’t.  How do they decided which villagers deserve priority.  We, as AT&T customers, assume that as we try to pull data from the network we have an equal priority to all other users, and everyone is having the same shitty experience as us.  Having been through the customer service ringer with AT&T and apple for the past 5 months, I have an alternate theory, and at the route of this theory is Apple’s iPhone return policy (reprinted below):

“iPhone Return Policy

If you are not satisfied with your iPhone purchase, please visit online Order Status or call 1-800-676-2775 to request a return. The iPhone must be returned to our warehouse within 30 calendar days from shipment to avoid an $175 early termination fee. The iPhone must be returned in the original packaging, including any accessories, manuals, and documentation.

Apple will assess a 10% restocking fee on any opened iPhone. Shipping fees are not refundable.

Note: iPhones must be returned to the original point of purchase (e.g., Apple Online Store, Apple Retail Store, AT&T, Apple Authorized Reseller) with a proof of purchase (e.g., Shipment Notification, Invoice Receipt).

Service Cancellation

By returning your iPhone purchase within 30 days from shipment, your wireless service will be cancelled automatically. You will be responsible for all applicable usage fees, prorated access charges, taxes, surcharges, or other charges through the termination date. Please contact AT&T for more information about applicable fees.”

So, when Apple seduces you to trade in your Blackberry/Verizon set up for a shiny new iPhone, they force you to sign an AT&T contract, and assuage your concerns around the horror stories of service outages with the following statement “if you don’t like it for any reason, you can return it within 30 days, cancel your AT&T contract, and it won’t cost you a dime.”

Now here’s where it gets fucked up.  Over the past 4 months or so, I have spent an estimate 6 hours on the phone with AT&T customer/tech support, trying to solve by service problems (at a very high cost to AT&T…those tech heads are not cheap)…finally, although it had never been mentioned previously, a few months ago, a customer service head said “have you tried a new Sim Card?” When I replied no, he said “I can’t believe we haven’t done that.  Go to the store, they’ll swap out you Sim Card, and that should solve your problems.”  Sure enough I did that, and for about 1 month and a half, service was noticeably better…then, of course, calls started to drop/fail again, No Data Service messages returned, and I was back where I started….I went to the store, asked for a new Sim Card again, and once again service returned.

So my theory is that AT&T is identifying the iPhones that have new Sim Cards as “new customers” and prioritizing the data packets being requested by those phones for the first month or two of service (until they exceed the 30 day return window when the phone and service can be cancelled), and then they push those customers into the general pool to make room for new accounts that Apple is funneling into them.  Obviously, I am not an engineer, but my understanding is that this is technically possible, and my business mind says that this is incredibly evil, but also incredibly brilliant…anyone who understands this stuff better than me, please chime in.  Steve Jobs (CEO Apple), Randall Stephenson (CEO AT&T)…responses welcome…everyone else, poke holes in this theory if it’s wrong/not possible.

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    I’m a NYC based investor and entrepreneur. I've started a few companies and a venture capital firm. You can email me at Jordan.Cooper@gmail.com (p.s. i don’t use spell check…deal with it)


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